Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 345

SMSFs have major role but not for everyone

The marketplace for the whole superannuation system and for financial advice and SMSFs is highly dynamic. All the major banks are moving away from directly providing wealth management activities and owning major dealer groups. This will lead to an increased reliance on smaller dealer groups and self-licenced advisers to meet advice needs.

Only a few major groups, including AMP and IOOF, remain committed to the provision of financial advice as part of their overall offering to customers. There is much interest in how successful the future strategies of these groups will be, as other parts of the financial system step up to fill the gaps.

Expansion of choices

One interesting move is the offer by industry funds, such as Hostplus, to SMSFs to use some of their investment options without needing to become members. We support the continued expansion of investment options, especially in the infrastructure and alternative investment categories, to SMSFs. We are strong believers in choice and competition and believe the whole superannuation system will benefit from continued expansion in choice in competition.

We strongly believe that SMSFs are an appropriate vehicle for a large number of Australians but not for everyone. Hence, we should make it as easy as possible for those who wish to use an SMSF, where it is appropriate, to do so. We should also make it as easy as possible for those who choose to shift from their SMSF to a large superannuation fund to do so.

Looking at projections for the whole superannuation system, such as those prepared by Deloitte, it is likely that the SMSF sector will continue to grow strongly in absolute terms over the next decade or two, but its share of overall system assets may reduce. Many existing SMSFs are in the drawdown phase and the overall age of SMSF members is significantly higher than for large super funds.

We do not subscribe to the view that there is a contest between different parts of the superannuation system to be the largest part. Our aim is to ensure that the SMSF sector remains attractive for those Australians who seek greater control of their own financial destiny in conjunction with their advisers or via their own management of their SMSF. We do not seek a particular market share. That should be the outcome of people exercising their choice in a competitive market. Our role is to help encourage the SMSF sector to maintain high integrity, high levels of efficiency and strong professional standards, so that an SMSF remains an attractive and viable choice for many Australians.

Many of the issues now facing the SMSF sector, with a high proportion of members in the drawdown phase, will be faced by large superannuation fund members over the decades ahead. These issues include estate planning, dealing with cognitive decline, managing low real rates of return on defensive assets and dealing with longevity risk. To date, most large funds are focused on optimising their operations during the accumulation phase. There will need to be a shift towards optimising how the funds operate in the drawdown phase for the members.

Many ongoing impacts of the Royal Commission and Productivity Commission recommendations will take several years to work through the system. The impact of the Retirement Income Review will be important but is more uncertain, given the nature of the review is to develop a fact base rather than a list of recommendations.

The Review Panel has put a long list of important questions in front of the Australian community. Many of these questions have been asked from time to time over the past 30 years and we are still grappling as a community to provide answers to such basic questions as what is the goal of the retirement income system, including superannuation, age pension and voluntary saving, including my home ownership.

Addressing unmet advice needs

One of the most important concerns is the level of unmet financial advice that will make it much more difficult for people to plan for their retirement and to execute those plans with a degree of confidence. The level of complexity in the system and the continued volatility in investment markets where most of the risk sits with the individual member produces much stress for retirees.

Some longevity protection is provided by the age pension for those with modest assets at retirement or at older ages but for many retirees it is very difficult to share or manage their retirement risks.

The future role of financial advice regulation is crucial. We believe that a more customer-centric advice framework is needed, where consumers can receive trusted and professional advice.

Consumers really want affordable advice, delivered with the help of sophisticated technology, via a system of open superannuation similar to the open banking environment with clear consumer data rights. Important thinking is underway via the Senate select committee on fin-tech and reg-tech, chaired by Andrew Bragg, and many interesting ideas have already been put to the committee in the first round of submissions.

We expect market dynamics will continue to evolve and the financial advice profession will gradually look more like a medical profession, where regular health checks can be undertaken using real-time data that is readily available for consumers and can be shared with their advisers. Efficient initial advice could be more like a half-hour discussion with the doctor reviewing the results of general blood tests and measurements of height, weight, blood pressure, family history, rather than requiring extensive manual data gathering and days of manual analysis and report preparation that is primarily focused on risk mitigation for advisers, rather than value adding for consumers.

Of course, we do not want to reduce any of the consumer protections provided by the existing regulatory frameworks, but mechanisms are needed whereby most Australians can have access to affordable advice with significant trust in the system.

This will require continued advancements in technology, rebuilding of trust from all participants in the financial system and from focusing on what is in the best interest of the consumer in reality rather than in theory. Protecting retirement savings and financial health of all Australians is at the forefront regardless of which forms of retirement savings are chosen.

 

John Maroney is CEO of the SMSF Association. This is an edited transcript of a speech given for Pritchitt Partners on 23 January 2020.

 


 

Leave a Comment:

     

RELATED ARTICLES

Three financial advice changes nobody is talking about

Why Westpac walked away from advice

Roboadvice's role in financial advice’s future

banner

Most viewed in recent weeks

Lessons when a fund manager of the year is down 25%

Every successful fund manager suffers periods of underperformance, and investors who jump from fund to fund chasing results are likely to do badly. Selecting a manager is a long-term decision but what else?

2022 election survey results: disillusion and disappointment

In almost 1,000 responses, our readers differ in voting intentions versus polling of the general population, but they have little doubt who will win and there is widespread disappointment with our politics.

Welcome to Firstlinks Election Edition 458

At around 10.30pm on Saturday night, Scott Morrison called Anthony Albanese to concede defeat in the 2022 election. As voting continued the next day, it became likely that Labor would reach the magic number of 76 seats to form a majority government.   

  • 19 May 2022

Betting markets as election predictors

Believe it or not, betting agencies are in the business of making money, not predicting outcomes. Is there anything we can learn from the current odds on the election results?

Keep mandatory super pension drawdowns halved

The Transfer Balance Cap limits the tax concessions available in super pension funds, removing the need for large, compulsory drawdowns. Plus there are no requirements to draw money out of an accumulation fund.

Welcome to Firstlinks Edition 455 with weekend update

The resolve of many investors to focus on the long term with their share portfolios is increasingly tested as the list of negatives lengthens. There is a lack of visionary policies during an election campaign and stimulatory spending is contradicting the aims of tighter monetary policy.

  • 28 April 2022

Latest Updates

In praise of our unique democracy and its sausage

For all the shortcomings of our political campaigns, our election process is the best. We are blessed with honest administrators and procedures that we all trust to hand over power peacefully, with a big snag. 

Investment strategies

Is the investing landscape really different this time?

Many market analysts argue that the pandemic has changed everything but we must judge whether the circumstances are as drastic as billed. A quick review of four major events helps decide if this time is different.

Economy

Comparing generations and the nine dimensions of our well-being

Using the nine dimensions of well-being used by the OECD, and dividing Australians into Baby Boomers, Generation Xers or Millennials, it is surprisingly easy to identify the winners and losers for most dimensions.

Retirement

When will I retire? Economic impact of an ageing population

About 39% of the labour force is aged over 45. Intergenerational reports highlight the challenges of an ageing population and the impacts on consumption patterns, dependencies, public finances and economic growth.

The real story behind the crypto crash

The recent sell-off in the crypto market and its trigger - the collapse of the Terra UST coin - has affected many institutions either holding or trading crypto assets, including crypto fund managers.

Investment strategies

Cash is the nightingale, the bird in the hand

The bird in the hand is worth two in the bush, and it's an apt metaphor for investment choices. In 2021, as investors hunted in the bush for decent returns, demand overwhelmed supply. Cash is the bird in the hand.

Strategy

Book review of 'Putin’s People' and his motivation for war

Author Catherine Belton argues Putin’s sole ambition is to hold onto power. Her book seeks to understand why Putin invaded Ukraine after he became isolated and out of touch with reality during the pandemic.

Sponsors

Alliances

© 2022 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.